President Obama has agreed to a tax deal that pushes us further down the road to social disaster.
In exchange for keeping the Bush tax cuts for 98 percent of the population for two additional years, President Obama has agreed to maintain lower tax rates for the top 2 percent as well. In two years, when it is election time and the economy remains stagnate, the pressure to make those tax cuts permanent will be immense. It is hard to imagine President Obama successfully resisting that pressure. Once those tax cuts become permanent, the demands to cut social spending in order to reduce the growth in the federal deficit (made worse by the tax cuts) will intensify.
The tax deal also includes a one year extension of extended unemployment benefits. Unfortunately, unemployment is predicted to remain high for at least two more years. The odds are great that these extended benefits will not be renewed and millions of people will join the millions already living in poverty.
The tax deal also includes a two year, two percentage-point reduction in the Social Security payroll tax. The Treasury will borrow the billions needed to compensate the Social Security system for the lack of revenue. However, when the two years are up, and it is election time, the pressure will be great to make those tax cuts permanent, although without further Treasury compensation. Not long after that happens, it is easy to imagine a steady drum beat of new claims of Social Security insolvency, adding strength to existing calls for cuts in Social Security benefits and the eventual privatization of the system. [Correction 12/13/10: the payroll tax reduction is for one year, not two as stated above.]
The tax deal also reduces the inheritance tax on big estates while raising the value at which the tax would take effect. The result will be a major loss of tax revenue, adding to pressures for cuts in social programs to reign in the federal deficit.
President Obama argues that all these measures will put money into people’s hands, promoting spending—a second stimulus in other words.
But the tax cut deals will only maintain what we already have—that is no stimulus. The other parts of the deal will certainly help to keep spending from sinking further, but they do nothing to promote a revitalization and restructuring of our economy. As a consequence, in two years we will face problems similar to those we face now, but with an even more distorted tax code and hightened threats to our Social Security system.
So, who thinks that this is a good idea? Well the White House has set up a web page to show off the support the President has received from economists. There are five names on it. As the economist Bill Black explains:
The web page cites the support of five economists. Peter Cardillo, the Bank of America, Greg Mankiw, and Wells Fargo (are the second through fifth economists on Obama’s list). . . .
Cardillo is an economist for an investment firm, Avalon Partners. Avalon’s web site states that it specializes in “wealth management” for “affluent investors…to meet the unique needs of high net worth individuals….” Yes, the wealthiest one-hundredth of one percent of Americans — the truly, uniquely needy.
The Bank of America (BoA) is next on the administration’s list of supporters. BoA’s senior leadership will personally save millions of dollars in taxes and its wealthy clients will save billions of dollars in taxes because of Obama’s decision to support the continuation of the Bush tax cuts for the wealthiest Americans. . . .
Professor Mankiw, Chairman of George W. Bush’s Council of Economic Advisors, is the next supporter that the Obama administration highlights. Mankiw was a leading apologist for the Bush tax cuts for the wealthy.
Wells Fargo is next on Obama’s roll of honor. Wells Fargo’s senior leaders, like BoA and Avalon Partners’ senior leaders, have personal and professional interests in supporting tax cuts for the wealthy. Wells Fargo is overjoyed by Obama’s agreement to extend tax cuts for the wealthy. All of these endorsements simply emphasize the extent to which Obama was taken to the cleaners. It’s bad to be bullied, but it’s pathetic to cite the testimonials of those that got even wealthier through the bullies’ triumph as evidence of your success.
It is hard to know what to say. However, I think there is more going on here than a simple matter of bullying.